John Cook First Applicant And: Patrick Street Holdings Ltd. First Respondent And: 11368 NL INC. Second Respondent - v. -, 2022 NLSC 92

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Cook v. Patrick Street Holdings Ltd. , 2022 NLSC 92 Date : May 30, 2022 Docket : 201601G6652 Between: John Cook First Applicant And: Patrick Street Holdings Ltd. First Respondent And: 11368 NL INC. Second Respondent - AND - D ocket : 201601G6654 BETWEEN: J-3 Consulting & Excavation Ltd. Applicant And: Patrick Street Holdings Limited FIRST Respondent And: 11368 NL INc. SECOND Respondent Before: Justice Garrett A. Handrigan Place of Hearing: St. John’s, Newfoundland and Labrador

Date of Hearing: September 11, 2020

Summary: Patrick Street Holdings Limited owed 11368 NL Inc. $4,080,961.94 as surplus funds from a power of sale proceedings on a mortgage, but failed to remit them. 11368 applied by Interlocutory Application for an order that Patrick Street Holdings’ solicitor was personally responsible for the debt because he did not follow its enforcement instructions. The Court dismissed the Interlocutory Application, without costs.

In the first instance, 11368 failed to prove that Patrick Street Holdings’ solicitor was a “garnishee” as defined the Judgment Enforcement Act ; and otherwise, it failed to prove that the solicitor had any obligation to Patrick Street Holdings that 11368 could attach. Appearances: No appearance On behalf of the Applicants Thomas W. Fraize, Q.C. Appearing on behalf of the First Respondents Sarah J. Clarke Appearing on behalf of the Second Robert R. Regular Respondents Gregory M Smith, Q.C.

Appearing on behalf of Thomas Fraize as Intervenor Authorities Cited: CASES CONSIDERED: Brenton Brothers Ltd., Re (1979) 24 Nfld. & P.E.I.R. 25 (S.C. (T.D.)); Cook v. Patrick Street Holdings Ltd. , 2020 NLSC 99 STATUTES CONSIDERED: Judgment Enforcement Act , S.N.L. 1996, c. J-1.1 ; Conveyancing Act , R. S. N. L. 1990, c.

C-34 REASONS FOR JUDGMENT Handrigan, J. : INTRODUCTION [ 1 ] On July 16, 2020, I ordered Patrick Street Holdings Limited (“Patrick Street Holdings”) to pay monies owing to Deanna Cheeke and 11368 NL Inc. (“11368”) from the balance of the $4,080,961.94 surplus that Patrick Street Holdings realized on the power of sale of mortgaged properties in Kenmount Terrace, St. Johns, NL, of which 11368 had been the mortgagor. 11368 applied to this Court by Interlocutory Application on August 27, 2020 asking for various relief, including an order granting judgment against Mr.

Thomas Fraize, Q.C., solicitor for Patrick Street Holdings personally, by section 125(1)(

b) of the Judgment Enforcement Act , S.N.L. 1996, c. J- 1.1 for the $4,080,961.94 surplus of funds on the power of sale. [ 2 ] I heard 11368’s Interlocutory Application on September 11, 2020, but due to inadvertence I did not file my decision in a timely manner. I do so now. The Issue

[ 3 ] 11368’s Interlocutory Application raises this issue: • Is it entitled to judgment against Thomas Fraize, Q.C. personally for $4,080,961.94? The Law Statute – Conveyancing Act [ 4 ] Section 14(3) of the Conveyancing Act , R. S. N. L. 1990, c. C-34 provides: 14(3) The money that is received by the mortgagee arising from… [power of sale proceedings], after the discharge of prior encumbrances to which the sale is not made subject, shall be held by him or her in trust to be applied (a) 1st, in payment of all costs, charges and expenses properly incurred as incident to the sale or an attempted sale, or otherwise; (

b) secondly, in discharge of the mortgage money, interest and costs, and other money due under the mortgage; and (

c) the residue of the money received shall be paid to the person entitled to the mortgaged property , or authorized to give receipts for the proceeds of the sale of the mortgaged property. [Emphasis added] Case Law – Conveyancing Act [ 5 ] Goodridge, J. (as he then was) interpreted section 14(3) (then section 7(3)) of the Conveyancing Act in Brenton Brothers Ltd., Re (1979), 24 Nfld. & P.E.I.R. 25, 1979 CarswellNfld 104 (S.C. (T.D.)): 20. It is my opinion that the effect of that subsection is to impress the surplus proceeds with a trust in favour of the persons entitled to the mortgaged property . 21.

One might query who are the persons entitled to the mortgaged property. It is my further opinion that they are those same persons who would be entitled to redeem the mortgage or who would be entitled to be joined as defendants in a foreclosure action. 22. These two classes of persons are basically the same and both clearly include judgment creditors who have levied upon the mortgaged property and subsequent or puisne encumbrances and, of course, the mortgagor itself. [Emphasis added] Statute – Judgment Enforcement Act [ 6 ] Section 125(1) of the Judgment Enforcement Act provides: 125(1) Where a garnishee (

a) does not comply with a requirement of this Part, the court may, on the application of a creditor grant the relief that it considers appropriate; or (

b) has failed to pay money to the sheriff in accordance with this Act, a creditor may apply to the court and that court may (

i) grant judgment against the garnishee for the amount of the garnishee order or a lesser amount that the court considers appropriate in the circumstances; (ii) where the attached obligation is a money judgment, order that the judgment be assigned to a creditor, or (iii) where the debtor has commenced an action against the garnishee to enforce the obligation, order that the action be assigned to a creditor and that the creditor have conduct of the action. [Emphasis added]

[ 7 ] Section 110(1)(

e) of the Act defines “garnishee” as “… a person on whom a garnishee order is served for the purpose of attaching an obligation that is owed or may become owing by that person to a debtor”. [ 8 ] This is the law I will apply to the issue I stated above. I turn now to analyze that issue starting with the background to it. Analysis Background [ 9 ] On July 16, 2020, in Cook v.

Patrick Street Holdings Ltd. , 2020 NLSC 99 , I ordered “… Patrick Street Holdings to pay to 11368 NL Inc. the balance of the surplus of $4,080,961.94 that Patrick Street Holdings realized on the power of sale of the Kenmount Terrace properties, less what it pays to Deanna Cheeke”. (Paragraph 36) [ 10 ] In paragraph 35 of that judgment, I made the following findings: 35.

In Re Brenton Brothers , Goodridge, J. confirmed that the words, “person entitled to the mortgaged property”, in section 14(3) of the Conveyancing Act included “the mortgagor itself”; after all other persons (e.g., “judgment creditors who have levied upon the mortgaged property and subsequent or puisne encumbrances”) have been satisfied. In this case, all other persons entitled by law to the mortgage property have been satisfied.

It follows then, that the balance of the surplus of $4,080,961.94 that Patrick Street Holdings realized on the power of sale of the Kenmount Terrace properties, less what is paid to Deanna Cheeke, are impressed with a trust in favor of 11368, the mortgagor and payable to it . [Emphasis added] [ 11 ] I set out the background to those findings fully in the same judgment and need not repeat it here.

Suffice it to say that I was satisfied that Patrick Street Holdings owed the balance of the surplus from the power of sale to 11368, less what Patrick Street Holdings had to pay to Deanna Cheeke; and that the surplus belonged to, and Patrick Street Holdings was obliged to hold it in trust for 11368. [ 12 ] On July 23, 2020, 11368 filed the order from my judgment with this Court, with my findings in it and formally directing Patrick Street Holdings to pay the monies to it.

On July 24, 2020, 11368 filed a Notice of Judgment [Registration Number: 2020002780] at the Office of the High Sheriff for $4,084,921.70 against Patrick Street Holdings for enforcement of the judgment. [ 13 ] The Notice of Judgment provided a civic address for Patrick Street Holdings and noted that “Fraize Law Offices – Thomas Fraize, Q.C.” represented the company.

The civic address that 11368 provided for Patrick Street Holdings is the same address used by Fraize Law Offices. (See Exhibit “C” to the Interlocutory Application”) [ 14 ] On July 25, 2020, 11368’s solicitors filed an “Enforcement Instruction Form” at the Office of the High Sheriff in which they directed the High Sheriff to enforce Judgment Number 2020002780 by this method: “Garnish Obligation/Garnish Other Income, Payment Source: Trust Account of Patrick Street Holdings Limited at Fraize Law Offices, Name: Held by Thomas Fraize, Q.C., Fraize Law Offices, Address: P. O. Box 5217, 268 Duckworth Street, St.

John’s, Postal Code: A1C 5W1”. (See Exhibit “D” to the Interlocutory Application) [ 15 ] On August 13, 2020, Fraize, Q.C. wrote to the Office of the High Sheriff to advise that “… Judgment [Number 2020002780] is being appealed and also there are liens registered against 11368 NL Inc.” (See Exhibit “E” to the Interlocutory Application).

Fraize, Q.C. then wrote to the solicitors for 11368 on August 14, 2020 providing a copy of the Notice of Appeal he referred to in his earlier letter to the Office of the High Sheriff. (See Exhibit “F” to the Interlocutory Application). [ 16 ] Finally, Fraize, Q.C. wrote again to 11368’s solicitors on August 24, 2020 saying “[w]ith reference to… [Garnishee Order, Action 2016 01G 6652, Registration No: 2020002780, Creditor: 11368 NL Inc., Debtor: Patrick Street Holdings Limited] we advise our firm does not hold any trust funds belonging to our client Patrick Street Holdings Limited”. (See Exhibit “G” to the Interlocutory Application) [ 17 ] This is the background to the issue I stated earlier and I turn now to discuss it.

Discussion [ 18 ] Patrick Street Holdings held the mortgage from 11368 by which it exercised the power of sale proceedings on September 19, 2016 and then transferred the mortgaged properties to itself for the stated consideration of $11,400,000. When Patrick Street Holdings satisfied all permissible claims on those properties it realized a surplus of $4,080,961.94, which belonged to 11368. By section 14(3)(

c) of the Conveyancing Act , and to paraphrase that section, Patrick Street Holdings should have paid that residue to 11368, which was “the person entitled to the mortgaged property”; but it did not. [ 19 ] Otherwise, to follow the reasoning of Goodridge, J. in Brenton Brothers , the funds were impressed with a trust in favour of 11368 and Patrick Street Holdings was obliged to hold those funds for 11368 on that trust. Patrick Street Holdings did not pay over funds and it did not honour the trust that section 14(3) of the Conveyancing Act impressed on them.

To that end, Patrick Street Holdings breached the trust and 11368 is entitled to the funds. [ 20 ] Of course, 11368 is not content with trying to enforce that trust against Patrick Street Holdings and collect the debt that the company owes to it from Patrick Street Holdings. By its Interlocutory Application, 11368 wants to extend that obligation to Fraize, Q.C. and to make him personally liable for the debt.

It instructed the Office of the High Sheriff to garnish funds in a trust account it believed that Fraize, Q.C. maintained for Patrick Street Holdings and not having satisfied its judgment by that means, it is looking to Fraize, Q.C. under

section 125 of the Judgment Enforcement Act . [ 21 ] There is no basis to hold Fraize, Q.C. personally liable for the surplus funds that Patrick Street Holdings realized from the

power of sale proceedings it exercised over the Kenmount Terrace properties by its mortgage with 11368. Let me explain. [ 22 ]

Section 2 (

e) of the Judgment Enforcement Act defines “garnishee” as “… a person on whom a garnishee order is served for the purpose of attaching an obligation that is owed or may become owing by that person to a debtor”. Fraize, Q.C. is not a “garnishee” within this definition for several reasons. [Emphasis added] [ 23 ] First, 11368 has not adduced any evidence that it served a garnishee order on Fraize, Q.C.

It is true that 11368 instructed the Office of the High Sheriff to garnish the “Trust Account of Patrick Street Holdings Limited at Fraize Law Offices”; but there is no evidence that the Office of the High Sheriff acted up on these instructions and actually served a garnishee order on Fraize, Q.C. as 11368 instructed it to do. [ 24 ] Nor has 11368 adduced any evidence that Fraize, Q.C. ever owed any money to 11368 or that he might ever become indebted to Patrick Street Holdings; so that there is in fact no basis to conclude that Fraize, Q.C. had any obligation to Patrick Street Holdings that was attachable.

Patrick Street Holdings was certainly indebted to 11368 but 11368 has offered no basis for making Fraize, Q.C. liable to it too. [ 25 ] It appears that 11368 feels that Fraize, Q.C. and Patrick Street Holdings can be linked through a trust account for Patrick Street Holdings at Fraize Law Offices.

As to that claim, I note first there is no evidence that Fraize Law Offices ever maintained a trust account for Patrick Street Holdings; and even more to the point that Fraize Law Offices ever held the surplus funds that Patrick Street Holdings realized on the power of sale proceedings for the Kenmount Terrace Properties in trust for the company. In fact, Fraize, Q.C. wrote to 11368’s solicitors on August 24, 2020 saying “…our firm does not hold any trust funds belonging to our client Patrick Street Holdings Limited”. [ 26 ] Overall, the power of sale proceedings took place on September 19, 2016.

Patrick Street Holdings’ liability to 11368 for the $4,080,961.94 surplus proceeds came into existence at that time. It appears that Patrick Street Holdings has still not met its obligation to 11368. However, at no time since the company’s obligation arose did that obligation transfer to Fraize, Q.C. personally so that he is liable to 11368 for it now. [ 27 ] In the result, I dismiss the Interlocutory Application. I make no order as to costs. Differences between 11368 and Patrick Street Holdings are longstanding and complex and this is just another step in their ongoing and litigious history.

Summary and Disposition [ 28 ] Patrick Street Holdings Limited owed 11368 NL Inc. $4,080,961.94 as surplus funds from a power of sale proceedings on a mortgage, but failed to remit them. 11368 applied by Interlocutory Application for an order that Patrick Street Holdings’ solicitor was personally responsible for the debt because it says that he did not follow its enforcement instructions. [ 29 ] The Court dismissed the Interlocutory Application, without costs.

In the first instance, 11368 failed to prove that Patrick Street Holdings’ solicitor was a “garnishee” as defined the Judgment Enforcement Act ; and otherwise, it failed to prove that the solicitor had any obligation to Patrick Street Holdings that 11368 could attach. Order [ 30 ] In the result, I order that: 1) 11368 NL Inc.’s Interlocutory Application to find Thomas Fraize, Q.C. personally liable for the surplus of funds on Patrick Street Holdings Ltd.’s power of sale proceedings is dismissed. 2) Each party bear its own costs. _____________________________ Garrett A. Handrigan Justice